Fitch Affirms Bountiful, UT's Electric Revs at 'AA-'; Outlook Stable

Published 3:57 PM ET Sun, 11 Nov 2012
Business Wire

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings affirms the 'AA-' rating on the city of Bountiful, UT's $14.7 million of electric revenue bonds, series 2010 (federally taxable-issuer subsidy-recovery zone bonds). This is the city's only outstanding electric utility debt. The Rating Outlook is Stable.

SECURITY

The bonds are secured by a lien on net revenues derived by the city from the operation of its electric utility. Net revenues include all revenues, fees, income, rents, and receipts of the utility, as well as interest subsidies from the federal government.

KEY RATING DRIVERS

SMALL, DIVERSIFIED UTILITY: The City of Bountiful operates a small retail electric utility with owned and purchased power resources in a solid service territory just north of Salt Lake City.

STRONG FINANCIAL POSITION: Strong financial metrics include healthy operating margins averaging near 20% annually over the past three years, 226 days cash on hand (DCOH), and very low debt levels.

STRONG PROJECTED COVERAGE: Projected debt service coverage of over 4x annually through the fiscal 2015 planning period comfortably exceeds Fitch's 'AA-' rating category median of 2.5x. Fifteen-year principal amortization of the utility's series 2010 bonds, its only outstanding debt, began in fiscal 2012.

INCREASED RATES: A series of rate increases this decade demonstrates a commitment to preserving the utility's financial strength. However, average retail prices are now about 25% above the Utah average, which might ultimately temper the utility's revenue-raising flexibility.

DIVERSE POWER SUPPLY: The utility is small for the rating category, but its diverse resources mitigate concentration risks and enhance economic control over its power supply. The utility has various purchase power contracts, as well as owned hydroelectric and natural gas-fired assets; two new natural gas turbines came online in June 2012.

SOLID SERVICE TERRITORY: A healthy service area includes above-average wealth indicators and historically low unemployment rates that peaked at just 7.5% during the recent economic recession.

CREDIT PROFILE

STRONG UTILITY FINANCIALS

The city of Bountiful has owned and operated its electric utility through its department of light and power since 1935. Utility financials are strong and projected to remain comfortably above Fitch's 'AA?' rating category medians through the fiscal 2015 planning period. Healthy operating margins have averaged nearly 20% in the past three years, and a strengthened balance sheet - with a newly established $5 million rate stabilization fund - includes 226 DCOH. In addition, the utility's limited debt profile provides for a high ratio of equity to capitalization equal to 73.8%.

Rates have increased by about 70% since 2000, and average retail prices are now about 25% above the Utah average. While above-average prices might ultimately temper the city's ability to enact further rate increases, the utility's two new generating facilities should enhance economic control over the dispatch of power. This should ultimately benefit the utility's financial operations, which are already projected to produce over 4x debt service coverage without additional rate increases.

DIVERSE RESOURCES

The utility is small for the rating category, but its diverse power supply, including one-quarter hydroelectric assets, mitigates resource concentration risks and provides flexibility to manage demand. A majority of the utility's power is purchased through long-term, take-or-pay contracts with three suppliers, and two new natural gas-fired turbines, each with a capacity of 12.5 megawatts (MW), came online in June 2012. The units increased the utility's power plant capacity by a net 22MW to 35MW and offset the loss of a 10MW power purchase agreement with the Deseret Power Electric Cooperative.

HEALTHY SERVICE TERRITORY

Bountiful is located approximately 10 miles north of Salt Lake City (general obligation bonds rated 'AAA' by Fitch, with a Stable Outlook) in southern Davis County. The utility's healthy service area includes above-average income levels and historically low unemployment rates that peaked at just 7.5% during the recent economic recession.

Residential customers contribute over half of operating revenues, which adds stability and predictability to the utility's finances. Fiscal 2011 uncollectible accounts amounted to a negligible 0.2% of sales, which was modestly improved from the prior year and in line with industry standards. A degree of customer concentration among the 10 largest users is offset by the favorable mix of sectors represented.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

In addition to the sources of information identified in Fitch's Revenue-Supported Rating Criteria and U.S. Public Power Rating Criteria, this action was informed by information from CreditScope.

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